Is Economics a Science?

I am one of the winners of this year’s Nobel Memorial Prize in Economic Sciences, which makes me acutely aware of criticism of the prize by those who claim that economics – unlike chemistry, physics, or medicine, for which Nobel Prizes are also awarded – is not a science. Are they right?

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Robert Shiller: A Skeptic and a Nobel Winner

Robert J. Shiller, a professor at Yale, learned on Monday that he had won the Nobel Memorial Prize in Economic Science, along with Lars Peter Hansen and Eugene F. Fama of the University of Chicago. The Nobel committee described Professor Shiller as a founder of the field of behavioral finance, an innovator in incorporating psychology into economics and a pioneering analyst of speculative bubbles in the stock and real estate markets.

He is also one of a group of eminent economists who write the Economic View column for Sunday Business, and has contributed 60 of those columns since August 2007. As the editor of that column, I have talked to him often about his work, and on Wednesday, he called me from the airport en route to a lecture at the Dutch central bank in Amsterdam. Here is an edited, condensed version of that conversation.

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Housing Market Is Heating Up, if Not Yet Bubbling

HOME prices have been rising rapidly, so much so that there is talk that we are entering another national bubble.

In fact, according to the S.& P./Case-Shiller Composite-10 Home Price Index, which Karl Case of Wellesley College and I developed, home prices in the United States were up 18.4 percent in real, inflation-corrected terms in the 16 months that ended in July. During the housing bubble that preceded the 2008 financial crisis, the largest 16-month increase wasn’t much bigger: 22.7 percent, for the period ended in July 2004. 

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The Best, Brightest, and Least Productive?

NEW HAVEN – Are too many of our most talented people choosing careers in finance – and, more specifically, in trading, speculating, and other allegedly “unproductive” activities?

In the United States, 7.4% of total compensation of employees in 2012 went to people working in the finance and insurance industries. Whether or not that percentage is too high, the real issue is that the share is even higher among the most educated and accomplished people, whose activities may be economically and socially useless, if not harmful.

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Why Innovation Is Still Capitalism’s Star

CAPITALISM is culture. To sustain it, laws and institutions are important, but the more fundamental role is played by the basic human spirit of independence and initiative.

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Bubbles Forever

NEW HAVEN – You might think that we have been living in a post-bubble world since the collapse in 2006 of the biggest-ever worldwide real-estate bubble and the end of a major worldwide stock-market bubble the following year. But talk of bubbles keeps reappearing – new or continuing housing bubbles in many countries, a new global stock-market bubble, a long-term bond-market bubble in the United States and other countries, an oil-price bubble, a gold bubble, and so on.

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Owning a Home Isn’t Always a Virtue

ENCOURAGING homeownership has been considered a national goal at least since “Own Your Own Home Day” was introduced in 1920 by various business and civic groups as part of a National Thrift Week. The newly popular word “homeownership” represented a goal and a virtue for every good citizen — to get out of the tenements and into one’s own home. Homeownership was thought to encourage planning, discipline, permanency and community spirit.

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